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Daily net profit average, in USD. Source: Day trading for a living?

What are the Odds You’ll Lose Most of Your Money Trading on the Stock Market Every Day?

And what do you do if you want to invest in the short term?

This is, of course, after a simple rule:

You should never, ever, never, ever, ever, ever, ever have money in the stock market that is going to be used in the next few years, let alone the recent future.

You will lose that money. I guarantee you.

No amount of education you believe you have will help you.

If you do make money, it’s due to luck, and you should count your blessings and absorb that short-term capital gain while you can.

The stock market is not some money machine. It doesn’t print cash. It doesn’t just spit money out to you in less than 6 months. I know it feels like it did in 2020, but this is highly abnormal. Real growth is slow and takes years. Businesses can take years to grow. They often take many years to grow.

Businesses can take years to actualize decent stock gains. Everything normalizes in the long-term, no matter what.

“Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities ¾ that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future ¾ will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.” — Warren Buffet, Berkshire Hathaway’s annual report in 2000.

I could have formatted this with a simple “hold stocks or indices long-term and stop checking your application frequently”. If you ever run into a situation where you might need the money in the near future, you should never be invested anyway. Mostly because it’s not investing that you are looking to do.

It’s 50/50 whether it’ll go up or down in that time. And, honestly, if you do keep it in, you have to admit to yourself you have a gambling problem.

Here is a paper published by researchers at the Sao Paulo School of Economics. Their work concluded that 97% of daytraders that persisted for 300 days or more lost money. Of those that made money, only 1.1% earned more than the Brazilian minimum wage.

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Source: Day Trading for a Living? Figure 1

Pretty much every research has concluded the same thing: If you’re not invested in things you know or the long-term, then you’re simply doomed.

And, if you need to use the money in six to eight months, then, by definition, you wouldn’t even be investing.

Written by

UC Berkeley, mathematics. Los Angeles. Long-time runner. Top writer on Quora, 100M+ total content views. New to Medium. Inquiries: Moumj@berkeley.edu

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